INTRODUCTION TO PUBLIC SECTOR ACCOUNTING
DIDEFINITION OF TERMS h h
State Corporation is an entity incorporated under the Companies Act, which is solely or partly o
h h h h h h h h h h h h h h h
wned by the national government for commercial purposes.
h h h h h h h
State agency is an entity howsoever incorporated by the government to undertake a specific strategic g
h h h h h h h h h h h h h h h
overnment objective in delivering public service and includes any entity classified as;-
h h h h h h h h h h h
a) An executive agency; h h
b) An independent regulatory agency; or h h h h
c) A research institution, public university, tertiary education and training institution; County Co
h h h h h h h h h h h
rporation is an entity howsoever incorporated, that is solely or partly owned by the county governmen
h h h h h h h h h h h h h h h
t for commercial purposes:
h h h
Commercial purpose means a function; h h h h
(a) Whose dynamics are governed by a competitive profit making and market driven; or
h h h h h h h h h h h h
(b) That can be performed commercially but serves a strategic socio-economic objective.
h h h h h h h h h h
FEATURES OF PUBLIC SECTOR ENTITIES h h h h
AS COMPARED TO PRIVATE SECTOR)
h h h h
There is an important difference between private sector accounting and governmental accounting. Th
h h h h h h h h h h h h
e main reasons for this difference are the environment of the accounting system. In the government en
h h h h h h h h h h h h h h h h
vironment, public sector entities have differing goals, as opposed to the private sector entities' one mai
h h h h h h h h h h h h h h h
n goal of gaining profit. Also, in government accounting, the entity has the responsibility of fiscal acc
h h h h h h h h h h h h h h h h
ountability which is demonstration of compliance in the use of resources in a budgetary context. In the
h h h h h h h h h h h h h h h h
private sector, the budget is a tool in financial planning and it isn't mandatory to comply with it.
h h h h h h h h h h h h h h h h h h
Government accounting refers to the field of accounting that specifically finds application in the p
h h h h h h h h h h h h h h
ublic sector ur government. It is a special field of accounting because; -
h h h h h h h h h h h h
(a) The objectives to which accounting reports to differ significantly from that for which ge
h h h h h h h h h h h h h
nerally accepted accounting practice has been developed for in the private (business) sector; &
h h h h h h h h h h h h h
Pageh373
, FINANCIALhACCOUNTING
(b) The usage of the results of accounting processes of government differs significantly from t
h h h h h h h h h h h h h
he use thereof in the private sector.
h h h h h h
An exception exists on the above-
h h h h h
mentioned differences in the case of public utility businesses (for example Electricity Services) that
h h h h h h h h h h h h h h
may be intended to produce a net income or profit, but a significant debate exists over whether there s
h h h h h h h h h h h h h h h h h h
hould be such an exception. Nationalization includes, amongst others, the argument that entities sho
h h h h h h h h h h h h h
uld be either private or public, and that the objectives of public entities should differ significantly fro
h h h h h h h h h h h h h h h h
m that of private entities. In other words, is the generation and reticulation of electricity with the obje
h h h h h h h h h h h h h h h h h
ctive to generate a profit in the pablic interest or not? And if ii is the best way, shouldn't it then be co
h h h h h h h h h h h h h h h h h h h h h h
mpletely private instead of having access to putnie funds and monopolies? '
h h h h h h h h h h h
The unique objectives of government accounting do not preclude the use of the double entry a
h h h h h h h h h h h h h h h
ccounting system. There can, however, be other significant differences with private sector acc
h h h h h h h h h h h h
ounting practices, especially those that are intended to arrive at a net income result. The object
h h h h h h h h h h h h h h h
ives for which government entities apply accountancy can be organized in two main categorie
h h h h h h h h h h h h h
s:
a. The accounting of activities for accountability purposes.
h h h h h h
In other words, the representatives of the public, and officials appointed by them, must he accountabl
h h h h h h h h h h h h h h h
e to the public for powers and tasks delegated. The public, who have no other choice but to delegate.
h h h h h h h h h h h h h h h h h h h
arc in a position that differs significantly front that of shareholders and therefore need financial infor
h h h h h h h h h h h h h h h
mation, to be supplied by accounting systems, that is applicable and relevant to them and their purpo
h h h h h h h h h h h h h h h h
ses.
b. Decision;-making purpoSes. h
The relevant mole-
h h
players, especially officials and representatives, need financial information that is accounted; organiz
h h h h h h h h h h h
ed and presented for the objectives of their decision-
h h h h h h h h
making. These objectives hear, in many instances, no relation to net income results but are rather abou
h h h h h h h h h h h h h h h h
t service delivery and efficiency. The taxpayer, a very significant group, simply wants to pay as little a
h h h h h h h h h h h h h h h h h
s possible taxes for the essential services for which money is being coerced by law.
h h h h h h h h h h h h h h
Governmentalhaccountinghstandardsharehcurrentlyhbeinghdominatedhbyhthehaccountinghstandardsh(internati
onallyhsometimeshreferredhtohashIFRS)horiginallyhdesignedhforhthehprivatehsector.hThehso-
calledhGenerallyhRecognisedhAccountinghPracticesh(GRAP)hthatharehbeinghenforcedhinhthehpunkt,.hSectorho
fhcountrieshsuchhashSouthhAfrica,honehofhthehfront-
runnershinhthishregardhishbasedhnilhthehGenerallyhAcceptedhAccountinghPracticeshoriginallyhdevelopedhforht
hehprivatehsector.hThehabovehandhcommonhsensehraiseshthehquestionhofhwhetherhthishishthehbesthsolution.hIthi
shofhcoursehCheaperhandhithitihallegedhthaththehhistory-
Ofhseparatehdevelopmenthofhaccountinghpracticeshforhgovernmenthhashnothbeohsuccessful.hEvenhaththehonset
hofhthehcurrenthfiscalhcrisishinhEuropehandhotherhpartShofhthehworldhithwasharguedhauthoritativelyhthaththehso
metimeshinapplicablehaccountinghpracticeshofhthehprivatehsectorhbeinghused,hhavehcontributedhtohthehorigin
ationhof,handhbelatedhreactionhto,hthehfiscalhcrisis
, Pageh374
DIDEFINITION OF TERMS h h
State Corporation is an entity incorporated under the Companies Act, which is solely or partly o
h h h h h h h h h h h h h h h
wned by the national government for commercial purposes.
h h h h h h h
State agency is an entity howsoever incorporated by the government to undertake a specific strategic g
h h h h h h h h h h h h h h h
overnment objective in delivering public service and includes any entity classified as;-
h h h h h h h h h h h
a) An executive agency; h h
b) An independent regulatory agency; or h h h h
c) A research institution, public university, tertiary education and training institution; County Co
h h h h h h h h h h h
rporation is an entity howsoever incorporated, that is solely or partly owned by the county governmen
h h h h h h h h h h h h h h h
t for commercial purposes:
h h h
Commercial purpose means a function; h h h h
(a) Whose dynamics are governed by a competitive profit making and market driven; or
h h h h h h h h h h h h
(b) That can be performed commercially but serves a strategic socio-economic objective.
h h h h h h h h h h
FEATURES OF PUBLIC SECTOR ENTITIES h h h h
AS COMPARED TO PRIVATE SECTOR)
h h h h
There is an important difference between private sector accounting and governmental accounting. Th
h h h h h h h h h h h h
e main reasons for this difference are the environment of the accounting system. In the government en
h h h h h h h h h h h h h h h h
vironment, public sector entities have differing goals, as opposed to the private sector entities' one mai
h h h h h h h h h h h h h h h
n goal of gaining profit. Also, in government accounting, the entity has the responsibility of fiscal acc
h h h h h h h h h h h h h h h h
ountability which is demonstration of compliance in the use of resources in a budgetary context. In the
h h h h h h h h h h h h h h h h
private sector, the budget is a tool in financial planning and it isn't mandatory to comply with it.
h h h h h h h h h h h h h h h h h h
Government accounting refers to the field of accounting that specifically finds application in the p
h h h h h h h h h h h h h h
ublic sector ur government. It is a special field of accounting because; -
h h h h h h h h h h h h
(a) The objectives to which accounting reports to differ significantly from that for which ge
h h h h h h h h h h h h h
nerally accepted accounting practice has been developed for in the private (business) sector; &
h h h h h h h h h h h h h
Pageh373
, FINANCIALhACCOUNTING
(b) The usage of the results of accounting processes of government differs significantly from t
h h h h h h h h h h h h h
he use thereof in the private sector.
h h h h h h
An exception exists on the above-
h h h h h
mentioned differences in the case of public utility businesses (for example Electricity Services) that
h h h h h h h h h h h h h h
may be intended to produce a net income or profit, but a significant debate exists over whether there s
h h h h h h h h h h h h h h h h h h
hould be such an exception. Nationalization includes, amongst others, the argument that entities sho
h h h h h h h h h h h h h
uld be either private or public, and that the objectives of public entities should differ significantly fro
h h h h h h h h h h h h h h h h
m that of private entities. In other words, is the generation and reticulation of electricity with the obje
h h h h h h h h h h h h h h h h h
ctive to generate a profit in the pablic interest or not? And if ii is the best way, shouldn't it then be co
h h h h h h h h h h h h h h h h h h h h h h
mpletely private instead of having access to putnie funds and monopolies? '
h h h h h h h h h h h
The unique objectives of government accounting do not preclude the use of the double entry a
h h h h h h h h h h h h h h h
ccounting system. There can, however, be other significant differences with private sector acc
h h h h h h h h h h h h
ounting practices, especially those that are intended to arrive at a net income result. The object
h h h h h h h h h h h h h h h
ives for which government entities apply accountancy can be organized in two main categorie
h h h h h h h h h h h h h
s:
a. The accounting of activities for accountability purposes.
h h h h h h
In other words, the representatives of the public, and officials appointed by them, must he accountabl
h h h h h h h h h h h h h h h
e to the public for powers and tasks delegated. The public, who have no other choice but to delegate.
h h h h h h h h h h h h h h h h h h h
arc in a position that differs significantly front that of shareholders and therefore need financial infor
h h h h h h h h h h h h h h h
mation, to be supplied by accounting systems, that is applicable and relevant to them and their purpo
h h h h h h h h h h h h h h h h
ses.
b. Decision;-making purpoSes. h
The relevant mole-
h h
players, especially officials and representatives, need financial information that is accounted; organiz
h h h h h h h h h h h
ed and presented for the objectives of their decision-
h h h h h h h h
making. These objectives hear, in many instances, no relation to net income results but are rather abou
h h h h h h h h h h h h h h h h
t service delivery and efficiency. The taxpayer, a very significant group, simply wants to pay as little a
h h h h h h h h h h h h h h h h h
s possible taxes for the essential services for which money is being coerced by law.
h h h h h h h h h h h h h h
Governmentalhaccountinghstandardsharehcurrentlyhbeinghdominatedhbyhthehaccountinghstandardsh(internati
onallyhsometimeshreferredhtohashIFRS)horiginallyhdesignedhforhthehprivatehsector.hThehso-
calledhGenerallyhRecognisedhAccountinghPracticesh(GRAP)hthatharehbeinghenforcedhinhthehpunkt,.hSectorho
fhcountrieshsuchhashSouthhAfrica,honehofhthehfront-
runnershinhthishregardhishbasedhnilhthehGenerallyhAcceptedhAccountinghPracticeshoriginallyhdevelopedhforht
hehprivatehsector.hThehabovehandhcommonhsensehraiseshthehquestionhofhwhetherhthishishthehbesthsolution.hIthi
shofhcoursehCheaperhandhithitihallegedhthaththehhistory-
Ofhseparatehdevelopmenthofhaccountinghpracticeshforhgovernmenthhashnothbeohsuccessful.hEvenhaththehonset
hofhthehcurrenthfiscalhcrisishinhEuropehandhotherhpartShofhthehworldhithwasharguedhauthoritativelyhthaththehso
metimeshinapplicablehaccountinghpracticeshofhthehprivatehsectorhbeinghused,hhavehcontributedhtohthehorigin
ationhof,handhbelatedhreactionhto,hthehfiscalhcrisis
, Pageh374
